FINANCIAL MANAGEMENT I

MODULE BOOK

FACULTY OF ECONOMICS AND BUSINESS

TRISAKTI UNIVERSITY
2021

Financial Management I Page 1

 Table of Content

Table of content
1. Introduction
2. Objective
3. Structures and organization
3.1. PBL
3.2. Interactive Lectures
3.3. Module Assignment
3.4. Financial Management Schedule
4. Assesment and Awarding of Points
4.1. Criteria for active participation & class discussion
4.2. PBL Task and Presentation
4.3. Quiz
4.4. Mid Term Test
4.5. Modul Assignment
5. Evaluation Instruments
5.1. Evaluation of PBL Sessions
5.2. Open Group Evaluation
6. Literature

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1. Introduction

The Field of Finance is broad and dynamics. Finance influences

everything that firm do, from hiring personnel to building factories to launching
new advertising campaign. Because almost any aspect of business has
important financial dimensions, many financially oriented career opportunities
await those who understand the principles of finance. Fluency in the language of
finance will improve your ability to communicate the value of your ideas to your
employer. Financial knowledge will also make you a smarter consumer and a
wiser investor with your own money.
Financial Management will be discussed in a two-term course, Financial
Management I and Financial Management II. This module book will help
students focus on some of the useful chapters as materials in Financial
Management I. This book describes the learning objectives of every chapter,
structures which show the activities and PBL Schedule, assessment, and tasks
of Financial Management.
The Financial Management I begin with reminding of the role and
environment of Managerial Finance as a basic understanding about financial
institutions and markets. They create the mechanism through which funds flow
between savers (funds supplier) and investors (funds demanders). The level of
funds flow between suppliers and demanders can significantly affect economic
growth. The interest rate level acts as a regulating device that controls the flow
of funds between suppliers and demanders.
The Financial Market Environment provides an overview of the
institutional framework for channeling funds from net savers to net borrowers.
The discussion begins with three basic types of financial institutions—
commercial banks, investment banks, and the shadow-banking system.
Financial markets more broadly are then introduced along with the distinction

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 between (i) money and capital markets and (ii) primary and secondary markets.
Considerable attention is also focused on the oft-misunderstood topic of
“efficient markets.” In the capital-markets discussion, the step-by-step process
for Initial Public Offerings of common stock is described to provide a real-world
example of funds travelling from net savers to net borrowers and illustrate the
role investment bankers play in that journey.
Financial Statement and Ratio Analysis, examines the four key
components of the stockholders’ report: the income statement, the balance
sheet, the statement of retained earnings, and the statement of cash flows. All
major items on the income statement and balance sheet are reviewed along
with rules for consolidating foreign and domestic financial statements. Next, the
discussion turns to use of income-statement/balance-sheet figures to assess a
firm’s financial condition. Three types of comparative analysis are noted—cross-
sectional, time-series, and combined—and specific ratios for such analysis are
presented for five perspectives on firm condition—liquidity, activity, debt,
profitability, and market. The DuPont system is integrated into the example to
show how profit margin, sales volume, and leverage interact to determine return
on equity.
Long- and Short-Term Financial Planning introduces the financial-
planning process, starting with an overview of long-term or strategic planning
and moving to a detailed exploration of short-term (operating) financial planning
and its two key components: cash and profit planning. Cash planning involves
preparation of a cash budget, while profit planning involves preparation of a pro
forma income statement and balance sheet. Step-by-step examples of cash
budget and pro forma statement development are used to illustrate nuances
students might find challenging—such as depreciation expenses as a cash
inflow and the distinction between operating and free cash flow. The chapter
ends by highlighting weaknesses of the simplified approaches to pro forma
statements (judgmental and percent-of-sales methods)—while still emphasizing
the importance of these statements (along with the cash budget) as tools for
disciplining management thinking about the range of possible cash flow and
profitability outcomes and responses to those outcomes.
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 The key—indeed, perhaps the most important—concept in finance: the
time value of money. The present and future value of a sum and an annuity are
explained. Special applications include intra-year compounding, mixed cash-
flow streams, mixed cash flows with an embedded annuity, perpetuities, loan
amortization, and deposits necessary to accumulate a future sum. The
discussion employs numerous business and personal examples to stress all
applications as variations on the same theme—sums received at different points
in time are worth different amounts to the recipient, with differences traceable to
when the sums are received and how frequently interest is compounded. The
chapter drives home the need to understand the time value of money to analyze
project profitability as a finance professional and achieve personal-finance goals
as an individual.
The fundamentals of risk and return—beginning with simple definitions
of total and expected return, risk neutral, risk averse, and risk seeking. The
discussion then moves to risk measurement by focusing on a single asset and
measuring risk with statistics associated with a probability distribution—namely,
mean, standard deviation, and coefficient of variation. To demonstrate that
insights about risk for a single asset do not necessarily carry through to a
collection of assets, the discussion broadens to risk and return for a portfolio.
Diversification is introduced through examination of risk for a portfolio of
positively correlated, negatively correlated, and uncorrelated assets. The key
takeaway is that the volatility (risk) of a portfolio will be less than a weighted
average of the volatilities of the assets in the portfolio as long as the correlation is
less than 1.0. The potential for risk-reduction through international diversification
is offered as an intuitive example. These ideas are used to motivate the Capital
Asset Pricing Model (CAPM). Diversifiable and nondiversifiable risk are
distinguished, with the key idea that the market only rewards bearing
nondiversifiable risk because firm-specific risk can so easily be eliminated
through diversification. Then, the CAPM equation and its pictorial representation
(Security Market Line or SML) are introduced to show the link between return
and nondiversifiable risk. The chapter concludes by illustrating the impact of
changes in inflation expectations and investor risk aversion on the SML.
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 Working Capital and Current Assets Management introduces the
fundamentals and describes the interrelationship of net working capital,
profitability, and risk in managing a firm’s current asset accounts. The chapter
then focuses on the management of three major current asset accounts⎯cash,
accounts receivable, and inventory. Also discussed are general inventory
management policies, international inventory management, and several specific
inventory management techniques: ABC, economic order quantity (EOQ),
reorder point, materials requirement planning (MRP), and just-in-time (JIT). The
key aspects of accounts receivable management are discussed: credit policy,
credit terms, and collection policy. The chapter also discusses the additional risk
factors involved in managing international accounts receivable. Examples
demonstrate the effect of changes in credit policy. Also discussed are the
impacts of changes in cash discounts. The chapter describes how managers
and individuals often have to make choices that involve tradeoffs between
quantity and price.
The management of current liabilities requires choosing appropriate
levels of financing and involves tradeoffs between risk and profitability. This
chapter also reviews sources of secured and unsecured short-term financing,
including the role of international loans. Spontaneous sources, such as accounts
payable and accruals, are differentiated from negotiated bank sources, such as
lines of credit. The cash discount offered on accounts payable and the cost of
forgoing such discounts are described. Secured sources include bank and
commercial finance company loans, backed by collaterals such as inventory or
accounts receivable. Whether borrowing funds as a manager or for their own
personal use, effective management of current liabilities is essential, making this
topics relevant at the professional and personal levels.
All topics will be delivered to the students by combining interactive
lecture and problem based learning (PBL) method. Cases or tasks are an
important component of the PBL system which evaluates how students can
apply managerial finance concepts, tools, and techniques. Module assignment
as comprehensive problems, integrative cases and realistic situation will be
presented at the end of each semester.
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2. Main Objectives
After studying Financial Management I, the students should be able to :
▪ Understand The Managerial Finance Function
▪ Discuss The Primary activities of The Managerial Finance Activity
▪ Describe The differences between the money market and the capital market.
▪ Understand the major regulations and regulatory bodies that affect financial
institutions and markets.
▪ Describe the process of issuing common stock, including venture capital,
going public, and the role of the investment bank.
▪ Understand who uses financial ratio and how.
▪ Use ratios to analyze a firm’s liquidity and activity
▪ Discuss the relationship between debt and financial leverage, as well as the
ratios use to analyze a firm’s debt.
▪ Use ratio to analyze a firm’s profitability and its market value.
▪ Use a summary of financial ratios and the Du Pont System of analysis to
perform a complete ratio analysis.
▪ Understand the financial planning process, tax depreciation procedures and
the effect of depreciation on the firm’s cash flows.
▪ Discuss the firm’s statement of cash flows, operating cash flows, and free
cash flow.
▪ Discuss the cash-planning process and the preparation, evaluation, and use of
the cash budget.
▪ Discuss the role of time value in finance, the use of computational tools, and
the basic patterns of cash flow.
▪ Understand the concepts of future value and present value of a sum and an
annuity. Special applications include intra-year compounding, mixed cash-flow
streams, mixed cash flows with an embedded annuity, perpetuities, loan
amortization, and deposits necessary to accumulate a future sum.
▪ Understand the meaning and fundamentals of risk and return, and risk
preferences.

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 ▪ Describe procedures for assessing and measuring the risk of a single asset,
for a portfolio, and the concept of correlation.
▪ Explain the capital asset pricing model (CAPM), its relationship to the security
market line (SML), and the major forces causing shifts in the SML.
▪ Understand working capital management, net working capital, and the related
tradeoff between profitability and risk
▪ Describe the cash conversion cycle, its funding requirements, and the key
strategies for managing it
▪ Discuss inventory management; differing views, common techniques, and
international concerns
▪ Explain the credit selection process and the quantitative procedure for
evaluating changes in credit standards
▪ Review the procedures for quantitatively considering early payment discount
changes, other aspects of credit terms and credit monitoring.
▪ Review accounts payable, the key components of credit terms, and the
procedures for analyzing those terms.

3. Structures and Organization

All of topics in Financial Management will be distributed into three activities,
which are:
▪ PBL Session
▪ Interactive Lectures
▪ Modul Assignment

3.1. PBL
In PBL session, all of students are expected will be active to discuss the
problems/ tasks under the chairman and secretary use 7 steps or steps
needed based on the task type. In this session, lecturer as facilitator,
moderator and tutor will assess their participation. Students have to work
together in a group and make a report which will discuss in the next
meeting.

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 3.2. Interactive Lectures
Lecturer will explain every topic briefly and ask the students to discuss
about related theory, concepts, or related examples. Two ways
communication lectures have to applied in that time. In the interactive
lecture participation, the students need to fulfil the following requirements:
▪ Present
▪ In time
▪ Well prepared
▪ Active Participate during the lecture
▪ Able to summarize the knowledge discussed

3.3. Module Assignment

Module assignment as comprehensive problems, integrative cases and
realistic situation will be prepared by a small group of 3-5 students based
on the topic which is determined by the lecturer. Lecturer will provide the
consultation hour for the students based on the time schedule. Module
Assignment will be presented at the end of semester.

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3.4. Financial Management II Class Schedule

Start Date & Day Start Report Exam, Quiz, Modas, Oral
Chapter Interactive Lectures
PBL (2021) PBL PBL Summarize (OS)

Wednesday 1-2 The Role of Managerial Finance OS

1
Sept-8 The Financial Market Environment

Wednesday 3 Financial Statements and Ratio Task 1 OS

2 Sept-15 Analysis

Wednesday 3 Financial Statements and Ratio Task 1 OS

3
Sept-22 Analysis

Wednesday 4 Long- and Short-Term Financial Task 2 OS

4 Sept-29 Planning

Long- and Short-Term Financial

Wednesday 4 Planning Task 2 QUIZ - 1
5
Oct-6

Wednesday 5 Time Value of Money Task 3 OS

6
Oct-13

Managerial Finance II Page

10
 Exam, Quiz, Modas, Oral
Start Date & Day Start Report
Tutor Interactive Lectures Summarize (OS)
PBL (2017) PBL PBL

Wednesday 5 Time Value of Money Task 3 OS

7 Oct-20
QUIZ

Wednesday Mid Test

8
Oct-27

Wednesday 8 Risk and Return OS

9 Nov-3

Wednesday 8 Risk and Return Task 4 OS

10
Nov-10

Wednesday 15 Working Capital and Current Task 4 OS

11 Nov-17 Assets Management

Wednesday 15 Working Capital and Current Task 5 OS

Nov-24 Assets Management
12

Managerial Finance II Page

11
 Exam, Quiz, Modas, Oral
Start Date & Day Start Report
Tutor Interactive Lectures Summarize (OS)
PBL (2017) PBL PBL

Wednesday 16 Current Liabilities Management Task 5 (Submit Modas)

13
Dec-1

Wednesday QUIZ - 2
14
Dec-8

Wednesday Module Assignment Presentation

15
Dec-15

Wednesday
16 Dec-22 Module Assignment Presentation

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4. Assesment and Awarding of Points

The assessment of students attending the module Managerial Finance consist

of four parts :
• Participation & Class Discussion : 15 points
• PBL Task & Presentation : 15 points
• Quiz : 15 points
• Mid Term Test : 25 points
• Module Assignment : 30 points
--------------------------
Total 100 points

Each of these parts is described below :

1.1. Criteria for active participation & class discussion

The first part of the participation assessment is a continuous one. During
most of the scheduled classroom activities, the students should be
demonstrating that they are well prepared and should actively participate.
During the PBL sessions and the interactive lectures the teaching staff will
assess the knowledge, skills and professional attitude of the students,
related to the learning process and the group process.

In the interactive lectures class participation and discussion, you need to

fulfill the requirements as follows to get maximum 15 points:
• Present,
• In time,
• Well prepared as agreed upon during the previous lecture,
• Able to summarize at the end of the lecture the knowledge related to the
main objectives of the interactive lecture by active note taking and
questioning during the lecture.

Managerial Finance II Page 13

 An important rule is :
You will only get active participation points if you do not miss more than 4
of the interactive lectures and class discussions involved.

1.2. PBL Task and Presentation

You will get PBL task and presentation points, which are maximum 15
points, if you are:
• Present,
• In time,
• Actively participating during step 1 to 5 of the seven steps,
• Well prepared for the report phase and presentation. You demonstrate
during step 7, that you are mastering most of the learning objectives of
the PBL-task by doing your self study activities as agreed upon during
the previous PBL session.
No points will be awarded for module assignment consultancy
lectures/hours.

1.3. Quiz
Quiz is a small test, which will consists of number of theories and
quantitative problems. Quiz will be held 2 times during the module.

1.4. Mid-Term Test

The mid of module test will be held at the mid of the semester (week 8). It
will consist of (more/less) 15 true/false items, 3-5 essay theoretical
questions, and 1-3 case/problem, assessing the knowledge and the skills
you have gained during your learning activities in order to demonstrate
how you are mastering the objectives of the PBL sessions and the
interactive lectures. You will get maximum 25 points from this mid-term
examination.

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 1.5. Module Assignment (Modas)
The project of Module Assignment (Modas) is going to be assessed in the
final week of the module (week XVI). All of the group should present their
analysis to the class. You will get maximum 30 points from this
assignment.
The module assignment is generally graded on two parts: group paper and
oral presentation. In details, each of these parts is described below.
Evaluation sheets for group paper (Modas) :
Module Assignments
Managerial Finance
Evaluation Sheets
Please fill in the following and attach a copy of this sheet to your module assignments

Group Name/Number

Student Names

ID Number of Students

Title of The Assignment

Tutor Name

Criteria Maximum Awarded

The students have provided a resume of the case 0 - 15

The students have to calculate liquidity, activity, debt, 0 – 15

profitability and market-ratio
The students have to analyze Financial performance using time- 0 – 15
series and cross section analysis.
The students have to calculate and analyze the cash conversion 0 – 15
cycle

The students have to calculate the risk and return for a single 0 – 10
asset.

The students have to calculate the risk and return for a portfolio 0 – 15

The students have to give recommendation the best portfolio 0 – 15

alternative

Total 100

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Evaluation sheets for modas presentation:

Assessment Assessment Sub- Max. Act (Students)

Category Category Points

Content (30) Coverage 10

Level of detail 10

Relevancy 10

Quality (30) Depth of 10

understanding

Depth of analysis 10

Quality of answer 10

Visual Aid (10) Tools of presentation 5

Other presentation 5
materials

Performance (30) Presentation 10

performance

Choice of word 10

Self confidence 10

Total Mark 100

Further comments:
……………………………………………………………………………………….……………………………………………………………………
…………………………………………………………………………….…………………………………………………………

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5. Evaluations Instruments
5.1. Evaluation of PBL Sessions
Instructions:
• Complete the chosen questionnaire individually by circling one of the numbers 1 – 5. If
you circle number 1 means that you totally disagree with the statement. If you circle
number 5 means that you fully agree with the statement.
• Write down on a piece of paper, the letter of the question (A, B, etc.) and your
reaction. When everybody is finished, the different reactions can be written on the
board and the most striking results can be discussed.

1. How hard do we actually work?

A 1 2 3 4 5 I spend enough time studying the learning objectives
B 1 2 3 4 5 If I cannot find something directly, I wait for the others in the PBL-
group give the answer.
C 1 2 3 4 5 I am always well prepared for the PBL-sessions
D 1 2 3 4 5 In this group, we are too quickly satisfied with a certain solution or
explanation
E 1 2 3 4 5 I think that other groups have already done more
F 1 2 3 4 5 I am learning a lot from the contribution of other group members
G 1 2 3 4 5 This is a productive PBL-group
H 1 2 3 4 5 The progress of this group is enhanced by all group members

2. How do we work at the tasks?

A 1 2 3 4 5 We work with a clear agenda in this group
B 1 2 3 4 5 The items on the agenda are truly finished in this group
C 1 2 3 4 5 Everybody in this group sticks to what is agreed
D 1 2 3 4 5 Analyzing a new task often happens too superficially
E 1 2 3 4 5 In this group, clear learning objectives are formulated
F 1 2 3 4 5 The PBL-sessions about the learning objectives add little to what I
already know
G 1 2 3 4 5 This group often strays from the subject
H 1 2 3 4 5 The decision-making process works well in this group

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3. How is the co-operation in this group?

A 1 2 3 4 5 In this group, people listen well each other

B 1 2 3 4 5 I can give my opinion in this group
C 1 2 3 4 5 In this group, we have confidence in each other’s contributions
D 1 2 3 4 5 Ideas of a few group members are followed to easily in this group
E 1 2 3 4 5 I feel comfortable in this group
F 1 2 3 4 5 In this group, I am stimulated and motivated by other group members
G 1 2 3 4 5 In this group, people are prepared to solve contradictions
H 1 2 3 4 5 People in this group are open to different views

4. The offered learning materials

A 1 2 3 4 5 The module book has a clear structure

B 1 2 3 4 5 The tasks stimulate discussion
C 1 2 3 4 5 The module book offers sufficient opportunities for repetition and
application
D 1 2 3 4 5 The module book varies in its structure and content
E 1 2 3 4 5 The tasks challenge me to further study and analysis
F 1 2 3 4 5 The tasks offer me sufficient opportunities to develop my own
initiatives
G 1 2 3 4 5 The construction of the module book gives me the feeling that I have
insight into the important subjects of this block
H 1 2 3 4 5 With the help of books and other learning materials, I can work well
on the learning objectives

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5. The tutor
A 1 2 3 4 5 The tutor stimulate the discussion in the PBL-group
B 1 2 3 4 5 The tutor helps us to connect ideas with each other
C 1 2 3 4 5 The tutor is good in describing the way we work together
D 1 2 3 4 5 The tutor directs our thinking on the subjects in the module book and
especially the subjects in the PBL tasks
E 1 2 3 4 5 The tutor leaves us too much to our own devices
F 1 2 3 4 5 The tutor explains so much that I myself am left doing less than usual
G 1 2 3 4 5 The tutor offers different alternatives to choose from
H 1 2 3 4 5 The tutor builds upon our knowledge of the subject

6. The chairman
A 1 2 3 4 5 The chairman kept him/herself to the agenda
B 1 2 3 4 5 The chairman stimulated the group to make clear choices
C 1 2 3 4 5 The chairman gave a summary regularly
D 1 2 3 4 5 The chairman prevented us from straying from the subject
E 1 2 3 4 5 The chairman dominated the discussion
F 1 2 3 4 5 The chairman paid too little attention to the contribution of every
group member
G 1 2 3 4 5 The chairman took care that the group followed a clear procedure
when handling the problems
H 1 2 3 4 5 The chairman took care that the group formulated clear learning
objectives

7. Summaries
A 1 2 3 4 5 The summaries were too short
B 1 2 3 4 5 The summaries reflected the different opinions
C 1 2 3 4 5 The moments at which summaries were given, were chosen well
D 1 2 3 4 5 The summaries were supported by visual resources
E 1 2 3 4 5 The summaries gave direction to the discussion
F 1 2 3 4 5 The summaries were accurate
G 1 2 3 4 5 The session would have been more productive if a summary was

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 given more often
H 1 2 3 4 5 After a summary, the group had the opportunity to give
supplementary information

5.2. Open Group Evaluation

Module name :
Module Period :
Group :
Tutor :

By means of this form, you have the possibility to make a number of remarks or
suggestions to improve this module. We will use the information to alter this module
where necessary, so the students following in your footsteps will benefit from your
honest opinion. In addition, we would value the information ourselves because it gives us
an opportunity to construct modules in accordance to your needs. If there is not enough
space, please feel free to use the back of this form.
Organization of the module: …………………………………………………………
Interactive lectures:……………………………………………………………………
Literature:……………………………………………………………………………
Module assignment:……………………………………………………………………
Tutor: …………………………………………………………………………………
Group:…………………………………………………………………………………
Consultancy hours: ………………………………………………………………………
PBL-tasks:
Task 1:
Task 2:
Task 3:
Task 4:
Task 5:
Other remarks: …………………………………………………………………………

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6. Literature
Principles of Managerial Finance, Chad J. Zutter and Scott B. Smart (2019)
15thEdition, Pearson Education Limited.

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 Task 1 : Financial Statement and Ratio Analysis

Given the following financial statements, historical ratios, and industry averages,
calculate Edyth Enterprises financial ratios for the most recent year. (Assume a 365-
day year.) Analyze its overall financial situation from both a cross-sectional and a
time-series viewpoint. Break your analysis into evaluations of the firm’s liquidity,
activity, debt, profitability, and market.

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Earning per share (EPS) 2020 : $ 4.1
Annual credit purchases of $ 6,200,000 were made during the year
On December 31, 2020, the firm’s common stock closed at $ 39.5 per share

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 Task 2. Long- and Short-Term Financial Planning

Bengawan Enterprises has gathered the following data to plan for its cash
requirements and short-term investment opportunities for July 2020 through
December 2020. You have been given the following data for Bengawan Enterprise:
1. Expected gross sales for May through December, respectively, are $300,000,
$290,000, $425,000, $500,000, $600,000, $625,000, $650,000, and $700,000.
2. 12% of the sales in any given month are collected during that month.
However, the firm has a credit policy of 3/10 net 30, so factor a 3% discount
into the current month’s sales collection.
3. 75% of the sales in any given month are collected during the following month
after the sale.
4. 13% of the sales in any given month are collected during the second month
following the sale.
5. The expected purchases of raw materials in any given month are based on
60% of the expected sales during the following month.
6. The firm pays 100% of its current month’s raw materials purchases in the
following month.
7. Wages and salaries are paid on a monthly basis and are based on 6% of the
current month’s expected sales.
8. Monthly lease payments are 2% of the current month’s expected sales.
9. The monthly advertising expense amounts to 3% of sales.
10. R&D expenditures are expected to be allocated to August, September, and
October at the rate of 12% of sales in those months.
11. During December a prepayment of insurance for the following year will be
made in the amount of $24,000.
12. During the months of July through December, the firm expects to have
miscellaneous expenditures of $15,000, $20,000, $25,000, $30,000, $35,000,
and $40,000, respectively.
13. Taxes will be paid in September in the amount of $40,000 and in December in
the amount of $45,000.
14. The beginning cash balance in July is $15,000.
15. The target cash balance is $15,000.
To Do
A. Prepare a cash budget for July 2020 through December 2020 by creating a
combined spreadsheet that incorporates spreadsheets similar to those in
Tables 4.8, 4.9, and 4.10. Divide your spreadsheet into three sections: (1)
Total cash receipts (2) Total cash disbursements (3) Cash budget covering the
period of July through December
The cash budget should reflect the following: (1) Beginning and ending
monthly cash balances (2) The required total financing in each month required
(3) The excess cash balance in each month with excess
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 B. Based on your analysis, briefly describe the outlook for this company over the
next 6 months. Discuss its specific obligations and the funds available to meet
them. What could the firm do in the case of a cash deficit? (Where could it get
the money?) What should the firm do if it has a cash surplus?

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 Task 3. Time Value of Money
No. 1
Find the present value of the streams of cash flows shown in the following table.
Assume that the opportunity cost is 12%.
Year Cash Flow Stream Cash Flow Stream
A B
1 Rp 2.800.000 Rp 2.100.000
2 1.400.000 1.680.000
3 2.100.000 1.820.000
4 1.540.000

No. 2
Arjuna has contracted to sell a piece of land that he owns, which has permission for a
residential development. A property developer is willing to buy the land and has
proposed two methods of payment. The developer is willing to pay Rp 2.400.000 now
or a deferred payment over the next 4 years paying Rp 640.000.000 at the end of
year 1, Rp 480.000.000 at the end of year 2, Rp 800.000.000 at the end of year 3,
and Rp 960.000.000 at the end of year 4. Arjuna wants to use the proceeds at the
end of year 5 to start a business and is concerned about future value of his receipts
at the end of year 5. He can earn 4% annual interest from his investment account.
Which alternative should Arjuna choose?

No. 3
Brian plans to invest $4,000 in an individual savings account (ISA) at a nominal
interest rate of 6%.
1. How much will Brian have in the account after 10 years if interest is compounded
(1) annually, (2) semiannually, and (3) daily (assuming 365-day year).
2. What is the effective annual rate (EAR) for each compounding period in part a?
3. How much greater will Brian’ ISA balance be if the interest is compounded
continuously rather than semiannually for the same period?
4. Consider your answers in parts a, b, and c. What does it indicate about the
relationship between compounding frequency and the compound value for
nominal interest rates?

No. 4
Anna just closed a $50,000 business loan that she must repay her brother, who has
agreed to lend it at 5% annual interest. Anna must repay the loan over the next 5
years, in five equal, end-of-year payments.

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1. How much does Anna have to pay every year if she has to repay the loan by the
fifth end-of-year instalment?
2. Prepare an amortization schedule showing the interest and principal breakdown
of each loan payments.
3. Explain why the interest expense of each subsequent payment declines over
time.

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 Task 4 : Risk and Return

1. Beni is searching for a stock to include in his current stock portfolio. He is

interested in Hi-Tech Inc.; he has been impressed with the company’s computer
products and believes that Hi-Tech is an innovative market player. However, Beni
realizes that any time you consider a technology stock, risk is a major concern.
The rule he follows is to include only securities with a coefficient of variation of
returns below 0.90. Beni has obtained the following price information for the
period 2015 through 2018. Hi-Tech stock, being growth oriented, did not pay any
dividends during these 4 years.
Year Stock Price
Beginning End
2017 $ 14,36 $ 21,55
2018 21,55 64,78
2019 64,78 72,38
2020 72,38 91,80

a. Calculate the rate of return for each year, 2017 through 2020, for Hi-
Tech stock.
b. Calculate the average return over this time period.
c. Calculate the standard deviation of returns over the past 4 years.
d. Based on parts b and c, determine the coefficient of variation of
returns for the security.
e. Given the calculation in part d, what should be Beni’s decision
regarding the inclusion of Hi-Tech stock in his portfolio?

2. Patrick is thinking of building an investment portfolio containing two stocks, L

and M. Stock L will represent 40% of the dollar value of the portfolio, and stock
M will account for the other 60%. The historical returns over the last 6 years,
2013–2018, for each of these stocks are shown in the following table.

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 Year Expected Return
Stock L Stock M
2013 14% 20%
2014 14 18
2015 16 16
2016 17 14
2017 17 12
2018 19 10

a. Calculate the actual portfolio return, rp, for each of the 6 years.
b. Calculate the average return for each stock and for the portfolio
over the 6-year period.
c. Calculate the standard deviation of returns for each asset and for
the portfolio. How does the portfolio standard deviation compare to
the standard deviations of the individual assets?
d. How would you characterize the correlation of returns of the two
stocks L and M?
e. Discuss any benefits of diversification achieved by Patrick through
creation of the portfolio

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 Task 5 : Working Capital and Current Assets Management

1. Amanda is an analyst at Barrilla Group. The firm turns over its inventory 5
times each year. It has an average collection period of 50 days and an
average payment period of 20 days. The firm’s annual sales are €12 million.
Assume there is no difference in the investment per euro of sales in inventory,
receivables, and payables, and assume a 365-day year.
a. Calculate the firm’s cash conversion cycle, its daily cash operating
expenditure, and the amount of resources needed to support its cash
conversion cycle.
b. Find the firm’s cash conversion cycle and resource investment
requirement if it makes the following changes simultaneously. (1)
Shortens the average age of inventory by 10 days. (2) Speeds the
collection of accounts receivable by an average of 15 days. (3) Extends
the average payment period by 5 days.
c. If the firm pays 15% for its resource investment, by how much, if
anything, could it increase its annual profit as a result of changes in part
b? d. If the annual cost of achieving the profit in part c is €50,000, what
action should Amanda recommend to Barrilla? Why

2. Sky Manufacturers uses 1,000 units of a product per year. Its fixed cost is $28
per order, while the carrying cost is $5 per unit per year. The lead time is 5
days and, therefore, the firm keeps 7 days’ usage in inventory as safety stock.
(Note: Use a 365-day year where required.)
a. Calculate the EOQ and the average inventory.
b. How many orders will Sky Manufacturers place during 1 year?
c. When should Sky Manufacturers place its orders?
d. Suppose Sky Manufacturers does not keep safety stock. Explain the
changes, if any, which will occur in (1) order cost, (2) carrying cost, (3)
total inventory cost, (4) reorder point, and (5) EOQ

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 3. Green Enterprises is evaluating a proposal to lengthen its credit period from
30 to 45 days. All customers will continue to pay on the net date. Currently,
credit sales are $650,000 and variable costs are $455,000. The selling price is
$20 per unit. The proposal is expected to lead to credit sales of $710,000.
However, bad debts are expected to increase from 1% to 2% of sales. The
required rate of return on equal-risk investments is 16.5%. (Note: Assume a
365-day year.)
a. Calculate the additional profit contribution from sales if the proposal is
implemented.
b. Calculate the cost of the marginal investment in accounts receivable.
c. Calculate the cost of the marginal bad debts.
d. Should the proposal be implemented? Explain.

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 Module Assigment

1. Choose one of listed companies, collect the financial statements for 5 fiscal
years 2016, 2017, 2018, 2019 and 2020. Calculate their financial ratios, along
with the 2020 industry average ratios. Analyze the firm’s current financial
position from both a cross-sectional and a time-series view point. Break your
analysis into evaluations of the firm’s liquidity, activity, debt, profitability, and
market. Summarize the firm’s overall financial position on the basis of your
findings.
Companies in Industry :
a. Food and Beverages ( Wednesday 07.30 )
b. Pharmaceuticals ( Wednesday 10.15 )

2. Calculate and analyze the cash convertion cycle for 5 fiscal years 2016, 2017,
2018, 2019 and 2020
3. Build three investment alternatives consist of single asset and portfolio
containing two stock from the different industry. Show any benefits of
diversification through creation of the portfolio, expected return, standard
deviation, coefficient of variation for each of the three alternatives and your
recommendation. Complete with your simulation before you offer the best three
alternatives.

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Financial Management I
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